Paul Murphy ripped up his local property tax bill in the European parliament in May 2013. Then an MEP, Murphy said he wouldn’t register for the charge, just like “hundreds of thousands of other people”. But the large-scale boycott he envisaged never materialised.
When Murphy declared that the property tax boycott was finished in November 2015, he blamed the Revenue Commissioners. The government’s decision to give the Revenue power to collect local property tax (LPT) had indeed turned out to be an inspired one, as it initiated the largest extension of self-assessment in the history of the state. The compliance rate now stands at about 96%.
Ireland’s LPT is charged at a basic rate of 0.18% on property market values up to €1m. Charges are placed within €50,000 bands, ranging from €90 up to €1,755 for values under €1m. A higher rate of 0.25% is applied on any portion above €1m. The valuations declared in 2013 have determined the LPT liabilities since.
The next valuation date is due in November 2019. House prices have risen rapidly in the past few years so many householders could face large hikes in property tax charges.
Frank Murray, tax director at Deloitte, said: “There is a bombshell coming down the road for people because property prices have increased hugely since 2013 . . . unless [the government] extends the deadline again.”
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Josepha Madigan, a Fine Gael TD for Dublin Rathdown, is among those who wants the government to start making arrangements now to offset the increases.
Three out of four property valuations for LPT are set at below the €200,000 band. Yet, the average national price for a house now stands at €249,358.
The average property tax paid in the Dublin city council region is €296. If prices were recalculated to 2017 property values, the bill would jump to €675. In Dun Laoghaire-Rathdown, the tax would increase from an average of €519 to €1,035, based on up-to-date house price figures from the Central Statistics Office (CSO). If house prices continue to rise in line with current inflation between now and 2019, homeowners could see their LPT charges jump still further.
Murray points out that house inflation is not in line with wage inflation, which affects ability to pay. One option to avoid a penal tax increase is to reduce the rate of 0.18%, he argues.
However, Ireland has one of the lowest property tax rates in Europe. In France, homeowners pay two local property taxes, to central government and local councils, both related to rental value. The average is about €2,000.
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Denmark’s residential property tax structure is two-tier. Properties valued up to 3.04m Danish krone (€408,000) are taxed at 1%, while anything above that is taxed at 3%. For a home worth €225,000, annual property tax is €2,250.
Barry Saul, a Fine Gael councillor in Dun Laoghaire-Rathdown, said some of his constituents are older retirees whose incomes from bank investments and shares were devastated in the recession. Their large homes may not reflect their incomes, and with a housing shortage many are finding it difficult to downsize.
However, John Moran, the secretary-general of the Department of Finance when the local property tax was introduced, said policies should not be dictated by a few individual stories.
“[LPT] was introduced to diversify our tax revenues away from income tax, which can be volatile and . . . may disappear in a downturn. It means that local services can continue to be supplied by local authorities,” he said.
Moran describes LPT as, in effect, a tax on an increase in wealth. “It would not be unreasonable to assume that opposition parties who have been calling for greater taxation on those with wealth would be supportive of the idea of continuing to index property tax to property values.”
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Since the start of 2015, local authorities have been able to vary the LPT rates by up to 15%. Eight local authorities decided to vary it this year. Many councils have started their review for 2018, and have called for submissions from the public.
“There is a bombshell coming down the road for people
In 2015, the government enlisted Don Thornhill, a former civil servant, to conduct a review of LPT. In his report, Thornhill recommended transferring the power to set the rate to local authorities, once the government set a minimum target yield. In his Fine Gael leadership campaign earlier this year, Leo Varadkar said he would give local authorities “greater autonomy” over LPT. Thornhill said there were “serious shortcomings” in the current system of applying a central rate of LPT because the Irish property market varies so widely. Many European countries allow their local councils to set property tax rates.
Ciarán Cuffe, a Green Party councillor with Dublin city council who has called for an increase in property tax, said giving local authorities autonomy would be a positive move. “The government controls almost every initiative we try in the city, and I think micromanagement is the wrong idea. The city is suffering from a lack of investment in housing, waste management, parks and other areas,” he said.
Madigan’s other issue is that all local authorities must put 20% of the money they collect into an equalisation fund, which is then distributed to more impoverished councils around the country.
Together, the four Dublin local authorities collect 40% of all of the LPT. Dun Laoghaire-Rathdown collected €43.1m in 2016, the highest amount per capita in the country.
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Another of Thornhill’s concerns was that property values could get stuck at 2013 levels, as successive governments postpone a revaluation in order to placate voters. In England, council tax is based on property values that were determined in 1991. This means billionaires living in Knightsbridge in London could be paying less council tax than middle-classes households in other areas of the city. The average council tax paid in England is about £1,500 (€1,660) a year.
Thornhill warned that if the Irish government deferred revaluation of properties, it would become more difficult to legislate for future changes. This could result in a “gradual accumulation of distortions and growing unfairness”.
Madigan would like the government to look at other ways of calculating the property tax, such as site taxes, and to consider more concessions.
However, Norah Collender, tax technical manager with Chartered Accountants Ireland, said basing the tax on market value is the fairest approach to taxing an asset. “It’s a progressive tax, which applies more tax on houses with higher values,” she said.
While Collender accepted that a valuation freeze is a simple solution to collecting property tax, she said no tax system should attempt to collect monies based on out-of-date information.
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“In one of the few court cases where a taxpayer was successful in challenging a tax on constitutional grounds, a factor was whether it was fair to levy rates based on out-of-date property valuations,” she said. “Ireland’s tax system will lose credibility if we continue basing LPT on valuations which are completely out of date.
“We are only kicking the can down the road and this issue must be addressed sooner rather than later.”